Ever wonder where your secure documents go to be stored after you no longer need to keep the physical piece of paper at your fingertips? Where do those big bins of confidential documents go to be securely shredded? It’s quite possible that they end up in an Iron Mountain warehouse.
Iron Mountain (IRM) is a records management business that started out by literally storing individuals’ valuable documents in a depleted mine called Iron Mountain in New York State. Over the past 60 years the business has expanded to become the leading global provider of offsite records storage and information management. IRM’s business model provides value to customers, predominately businesses with high regulatory burden to keep paper and electronic records, by providing an option for securely storing files and electronic data backups. Customers pay monthly to store their archives with IRM and pay for pick-ups and drop-offs of those archives as they occur.
Customers sign multi-year contracts and boxes have an average storage life of over 15 years providing reliable recurring revenues. Switching costs are high, so IRM is able to retain existing customers and focus on gaining new customers or more business from customers who only store a portion of their records. Because customers are so unlikely to switch, IRM has been successful in passing on increases in operating costs (electricity, diesel prices) to customers. Not only does IRM provide storage, but it also provides destruction services and generates revenue by selling shredded paper to recyclers.
As we enter an increasingly digital world, IRM has adapted by diversifying into the information management space. IRM also provides onsite electronic record management software and information management consulting services.
IRM’s operating model compliments its business model in a number of ways. IRM’s customers are often medical systems, insurance companies, law firms and banks, many of which are located in dense areas where real estate comes at a premium. The operating model is a real estate arbitrage strategy. By picking up boxes from several office buildings in Manhattan and storing them in a single warehouse in a less expensive industrial area upstate, IRM can offer customers a simple solutions to an otherwise costly and inconvenient problem.
To grow profitably, IRM has focused on density. By building a customer base in concentrated areas, the company can capitalize on route density for pickups and fill warehouses to efficient capacity. The steady cash flows from this business allow IRM to be acquisitive and buy smaller independent records managers. In this way, customers don’t have to switch providers. Rather they are just now serviced by a new company. This acquisitions model allows IRM to build the density it needs to maximize profitability. Following the acquisition, IRM leverages its years of integration experience to consolidate warehouses, fleets and service routes, and optimize labor and facility processes. IRM recently announced plans to acquire the number 2 player, Recall, which they expect to deliver $150 million in synergies if they can achieve anti-trust approval.
Due to its increased scale, IRM can invest in service offerings for customers, integrating themselves deeper into the customers’ business. It has invested in research to understand what customers need from records managers and how they could be more value-add. It is also focused on global strategy and process improvement. It employs a continuous improvement philosophy and aims to have the improvement program be self-funding through cost reductions that result from the process. IRM cross trains talent and encourages a flat organization to allow leaders to develop and top performers to surface.
The reason IRM has been so successful is because management is focused on achieving operating leverage in its operating model. Several independent players have mastered the business model of storing records offsite, but IRM has maximized value by paying close attention to density and scale. The company even recently divested its shredding operations in the UK citing inadequate scale to justify the business. Now that they have achieved desired scale in developed markets of North America and Western Europe, cash is being reinvested in Emerging Market Growth where there are still efficiencies to be had.
Management’s disciplined approach has allowed the business to evolve as the needs of customers have changed. The focus on returns guides management to invest in businesses that make sense and get out of businesses that don’t. Now, IRM can bring its efficiency to new markets and profitably provide its global customers with a truly global service.
Iron Mountain 2014 Annual Financial Report and Stockholder Letter
Iron Mountain Investor Day-October 14, 2015 Presentation